Dáil debates

Tuesday, 5 July 2011

3:00 pm

Photo of Aengus Ó SnodaighAengus Ó Snodaigh (Dublin South Central, Sinn Fein)
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Question 33: To ask the Minister for Finance if he will detail the number of companies operating here who pay less than the 12.5% rate of corporation tax; if he will provide this number as a percentage of the total number of companies currently operating here; and the reason these companies pay less than the 12.5% rate of corporation tax. [18606/11]

Photo of Brian StanleyBrian Stanley (Laois-Offaly, Sinn Fein)
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Question 55: To ask the Minister for Finance the percentage of companies currently operating here who pay the 12.5% rate of corporation tax. [18605/11]

Photo of Aengus Ó SnodaighAengus Ó Snodaigh (Dublin South Central, Sinn Fein)
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Question 78: To ask the Minister for Finance the number of persons currently employed in those companies that pay the full 12.5% rate of corporation tax. [18607/11]

Photo of Michael NoonanMichael Noonan (Limerick City, Fine Gael)
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I propose to take Questions Nos. 33, 55 and 78 together. I wish to advise the Deputies that companies operating in Ireland are chargeable to corporation tax at the 12.5% rate on their trading profits. A higher 25% rate applies in respect of investment, rental and other non-trading profits and chargeable capital gains. This rate also applies in respect of certain petroleum, mining or land dealing activities. The 10% corporation tax rate for profits from manufacturing expired at the end of 2010 and the 12.5% rate now applies to such profits. Accordingly, all companies operating here pay corporation tax at the 12.5% rate or at the higher 25% rate on their taxable profits. Irish resident companies pay corporation tax on their worldwide profits subject to relief for foreign tax paid on profits earned abroad. Non-resident companies trading in Ireland through a branch or agency pay corporation tax on the profits of their Irish branch.

I am informed by the Revenue Commissioners that, for the year 2009, which is the most recent year for which information on corporation tax returns is available, approximately 47,000 companies with taxable income filed returns for accounting periods ending in that year. Of these, approximately 28,000 companies, or 60%, paid corporation tax at the 12.5% rate. The remaining companies either paid tax at the 10% manufacturing rate, now expired, or at the 25% rate.

In regard to employment, the Revenue Commissioners do not have an estimate of the number of persons currently employed by companies chargeable to tax at the 12.5% rate of corporation tax but, based on P35 returns filed by employers for 2010, the estimated number of employments in all companies on Revenue records for that year was 1,590,367. I should emphasise that this number relates to employments, not individuals, and reflects the reality that many employees have more than one employment. Employees with more than one employment are therefore counted more than once in the figures provided.

Photo of Pearse DohertyPearse Doherty (Donegal South West, Sinn Fein)
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How many of the companies subject to the 12.5% rate pay a lower effective tax rate as a result of various measures allowing them to write down their tax liabilities? Does the Minister have numbers or percentage figures in respect of companies that have not paid tax as a result of these initiatives?

Photo of Michael NoonanMichael Noonan (Limerick City, Fine Gael)
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I do not have the figures sought by the Deputy to hand but, in overall terms, there has been a debate on who pays what rate of corporation tax across the European Union. If one takes the effective rate rather than the nominal rate, Ireland is positioned in the lower segment of mid-table. Our effective rate is 11.9% whereas our nominal rate is 12.5%. The two rates are very close because most of the allowances have been removed over the years. France, for example, levies a variety of rates. The rate that applies to SMEs is approximately 32% whereas the rate is much lower for the top 40 French companies in general terms. This has been a matter of contention in France for a long time. While one needs to compare like with like, if one combines all the rates that apply in France, its effective rate stands at 8.1% even though it is making considerable noise about our effective rate of 11.9%. Contrary to the conventional wisdom, we are mid-table in Europe and are not at the bottom of the table by any means.

Photo of Richard Boyd BarrettRichard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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I was surprised to hear the Minister state that the effective rate is 11.9%. Perhaps he can clarify the source of the figure because other figures were outlined in the Private Members' debate on this issue which indicated that the effective rate was approximately 10%. Can he confirm whether the fleets of company cars which are given to high paid executives in highly profitable companies continue to be written down for tax purposes so that companies can sidestep some of their corporation tax liabilities? Given the sacrifices being made by ordinary workers and vulnerable people dependent on our public services, is it fair that profitable companies which make hundreds of millions of euro per year pay a lower proportion of tax on their earnings than the workers who clean the floors of their buildings? How can the Minister morally justify that in the current circumstances?

Photo of Michael NoonanMichael Noonan (Limerick City, Fine Gael)
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As corporation tax is a tax on company profits, obviously costs are taken out before one calculates the base on which the 12.5% rate is applied.

Photo of Richard Boyd BarrettRichard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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Should swanky company cars be taken out?

Photo of Michael NoonanMichael Noonan (Limerick City, Fine Gael)
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If it is a cost, it is a cost. It is a tax on profits. That is straightforward. The source is a survey carried out by one of the international accountancy firms. I do not have further information to hand but I will get it for the Deputy. The survey investigated nominal rates and effective rates throughout the European Union and we circulated the results widely through the diplomatic service to ensure the debate is conducted on the real figures. This is one of the reasons the European Commission, the IMF, the OECD and 25 of the 27 member states either support us or are silent. The quid pro quo of changes to our corporation tax rate in return for a reduction on our interest rate is now an issue that only France is pursuing.

Photo of Pearse DohertyPearse Doherty (Donegal South West, Sinn Fein)
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While I agree with the Minister on comparisons between the French rate or even the European average and Ireland's effective rate, I would like to know the number of profitable companies which pay a low effective tax rate as a result of being able to write off their taxes against the various initiatives introduced in successive budgets. Can an argument be made for a minimum effective tax rate for profitable companies so that they can only avail of these schemes to a certain extent? That is the line of questioning I wish to pursue but I do not know if the Minister has the relevant figures to hand. Clearly, if our effective tax rate is lower than the nominal rate certain companies are paying smaller amounts and I would like to know the rationale for this. Is it on the basis of being able to avail of different schemes, as was the case for high earners until a minimum tax rate was introduced in respect of them? This is the type of information I seek.

Photo of Michael NoonanMichael Noonan (Limerick City, Fine Gael)
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More than 28,000 companies pay tax at the 12.5% rate but the Deputy wants to know how many pay smaller amounts. I do not have the precise figures to hand and I do not think anybody does. In general terms, there are few allowances but the tax is levied on profits. Obviously companies can deduct costs before the tax break arises. The one break of which I am aware was introduced in the Finance Bill 2004 and allows write-offs for research and development. This has proved attractive to companies setting up here.

The normal course for a company is that it incurs significant costs when it initially sets up operation here and, as such, pays little tax over the first several years while it offsets these costs. Once it is established it comes up to the 11.9% rate, which is the standard rate paid, as against the nominal rate of 12.5%.

Photo of Shane RossShane Ross (Dublin South, Independent)
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Deputy Doherty touched on an interesting line of questioning. If the Minister is correct about the effective rate, which he undoubtedly is given that he cited the figures he was given, what is the reaction of his counterparts in France when he tells them we in Ireland regard it as rank hypocrisy that they are demanding a reduction in our rate? Their rate is lower than most others in Europe, including ours. Will he tell them we will listen to what they say but will do what they do by reducing our tax rate to the same effective rate as applies in France? That should keep them happy.

Photo of Michael NoonanMichael Noonan (Limerick City, Fine Gael)
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We have shared this information through our diplomatic system. The initial reaction of colleagues in Europe was surprise but they all accept it now. We got the information published in the leading French newspapers, including Les Echos, which is the French equivalent of the Financial Times, and I think it was also published in Le Monde. There has been a change in the French position. It is no longer seeking an increase in our 12.5% rate and has moved the argument on to the tax base. The information has gone through, therefore, and it has had an effect.

Photo of Shane RossShane Ross (Dublin South, Independent)
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Would the Minister consider reducing our corporation tax to the same effective rate as in France? That would be fair.

4:00 pm

Photo of Michael McGrathMichael McGrath (Cork South Central, Fianna Fail)
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The Minister opened up my supplementary question on the related issue of the base, changes to which could result in corporate profits currently taxed here being taxed in another European jurisdiction. What is the current position on these discussions?

During the recent summit of the European Council, there were suggestions that the issue of the base was now the quid pro quo for a reduction in the interest rate on the bailout. Can the Minister confirm if the discussions between our officials and European officials is focused on that issue?

Photo of Michael NoonanMichael Noonan (Limerick City, Fine Gael)
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Discussions are focused on the possibility of getting an interest rate reduction. An argument about the rates has moved on to the base for quite some time now. The base is described along with the CCCTB, and the Commission has done a paper on it, which will eventually come before the Council of Ministers. It is before some technical committee at the moment which is making adjustments to it. There are 27 countries in the Union and all 27 of them have expressed unhappiness, to one degree or another, about the CCCTB paper. France has a view about the base which its officials are pushing, and we do not agree with that view, so we are not doing business there either.